Wind power producers ask regulators for rate certainty

Independent sources of Interior electricity are in the hands of the Regulatory Commission of Alaska.

Alaska Environmental Power LLC, a small wind farm near Delta Junction, filed an informal complaint Aug. 23 with the commission against Golden Valley Electric Association’s proposed power purchase agreement.

Golden Valley filed its template contract with the commission, or RCA, in July as a guide for future agreements with independent power producers.

Alaska Environmental Power owner and founder Mike Craft said Golden Valley’s filing does not give independent producers an opportunity to enter the Interior electricity market on a level playing field.

Golden Valley serves Interior railbelt communities with power generated mostly from the burning of coal, fuel oils and natural gas. It also has rights to power from the state-owned Bradley Lake hydropower plant on the Kenai Peninsula and about 1 percent of its power last year came from its just-completed Eva Creek wind farm near Healy.

Since 2008, Golden Valley has been purchasing up to two megawatts of power from Craft’s wind farm under an agreement through the Experimental Renewable Resource Purchase Program.

Golden Valley’s average load is between 150 megawatts in summer and more than 200 megawatts at peak winter draw.

Craft contends that by averaging its cost of power over all of its generation sources, Golden Valley has been able to avoid buying power from independent producers. Rather, he said, the cost should be broken down incrementally, which would allow his wind power to effectively displace expensive fuel oil-produced power.

An incremental cost would allow Craft to sell electricity to Golden Valley at the 12.5-cent per kilowatt-hour rate he needs to be viable, he said.

Golden Valley updates its “cost of power” quarterly to adjust to market demands, President and CEO Cory Borgeson said. Its current average to purchase or produce power across generation methods is 10.5 cents per kilowatt-hour, or kWh. Administration fees are added to that cost for a final retail rate.

That 10.5-cent rate is set in congruence with RCA regulations, Borgeson said.

According to Golden Valley, 43 percent of the power it produced in 2012 was from fuel oils. That power ranged in production cost from 15.8 cents per kWh to 60.2 cents per kWh.

The agreement Golden Valley filed with the RCA calls for rates to continue to be updated quarterly. Given a fixed price, Craft said he would increase his power generating capacity to 25 megawatts. He said his 380-acre farm, which has two wind turbines, is ready for expansion.

“I had days out here last year where I would have saved (Golden Valley) $52,000 a day between the 12.5-cent rate that I was asking for and the incremental avoided cost on what I would have been displacing,” Craft said from his wind farm.

Borgeson said that Golden Valley cannot justify buying wind power from Craft if it doesn’t beat the average production cost under current regulations.

“We would love to have Mike Craft’s wind (power). It’s in the right spot, at Delta, to have power generated there,” he said. “It’s just got to be a fair economic deal — it’s got to work for both of us.”

At an average cost, Craft said he is unfairly forced to compete with coal and hydropower, when his power is cheaper than that produced with fuel oils.

Borgeson said the process of dispatching power is not as simple as turning off the fuel oil and offsetting it with wind power. He added that wind power is the least reliable of all the power sources available.

CIRI requested the ruling because it claims the quarterly updated rate prevents independent producers from having a “certainty of revenue, and thus no ability to assure a lender that the (producer) will be able to repay its debt.”

Craft said in the past he has had investors ready to support a $54 million expansion of his wind farm, if he could have gotten a firm purchase agreement.

The uncertainty of what the future holds for energy production in Alaska means Golden Valley can’t allow itself to be committed to long term purchase agreements, Borgeson said.

“Mike wants us to enter in to a contract with a guaranteed price and that may be a good arrangement for our members and that may be a bad arrangement depending on what happens to our cost of power over 20 years,” he said. “The question is: Who’s going to take the risk?”